Question

1. SLAC Company is a toy manufacturing firm. It estimates that it will produce 20,000 toy trucks during the coming year that will each use .025 gallons of paint at $30 per gallon. SLAC Company used 490 gallons to actually produce 24,500 toy trucks. Also, the amount of paint in ending inventory increased by 10 gallons during the period. The total price for paint was $17,000. In addition, the company expects each truck to use 1.5 hours of labor at a cost of $7.00 per hour. However, at the end of the year it was determined that a total of 37,975 hours were used at a cost of $6.80 per hour.

a.) Find the following variances: direct materials price variance, direct materials usage variance, overall direct materials variance, direct labor rate variance, direct labor efficiency variance, and overall direct labor variance.

b.) Management implemented a new strategy with respect to inputs. The new strategy involved a decision to invest in higher quality inputs. Evaluate management’s strategy.

Answer 1